Keep Us Strong WikiLeaks logo

Currently released so far... 97115 / 251,287

Articles

Browse latest releases

Browse by creation date

Browse by origin

A B C D F G H I J K L M N O P Q R S T U V W Y Z

Browse by tag

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
ETRD EAGR ETTC EAID ECON EFIN ECIN EINV ELAB EAIR ENRG EPET EWWT ECPS EIND EMIN ELTN EC ETMIN EUC EZ ET ELECTIONS ENVR EU EUN EG EINT ER ECONOMICS ES EMS ENIV EEB EN ECE ECOSOC EK ENVIRONMENT EFIS EI EWT ENGRD ECPSN EXIM EIAD ERIN ECPC EDEV ENGY ECTRD EPA ESTH ECCT EINVECON ENGR ERTD EUR EAP EWWC ELTD EL EXIMOPIC EXTERNAL ETRDEC ESCAP ECO EGAD ELNT ECONOMIC ENV ETRN EIAR EUMEM ENRGPARMOTRASENVKGHGPGOVECONTSPLEAID EREL ECOM ECONETRDEAGRJA ETCC ETRG ECONOMY EMED ETR ENERG EITC EFINOECD EURM EENG ERA EXPORT ENRD ECONEINVETRDEFINELABETRDKTDBPGOVOPIC EGEN EBRD EVIN ETRAD ECOWAS EFTA ECONETRDBESPAR EGOVSY EPIN EID ECONENRG EDRC ESENV ETT EB ENER ELTNSNAR ECHEVARRIA ETRC EPIT EDUC ESA EFI ENRGY ESCI EE EAIDXMXAXBXFFR EETC ECIP EIAID EIVN EBEXP ESTN EING EGOV ETRA EPETEIND ELAN ETRDGK EAIDRW ETRDEINVECINPGOVCS EPEC ENVI ELN EAG EPCS EPRT EPTED ETRB EUM EAIDS EFIC EFINECONEAIDUNGAGM EAIDAR ESF EIDN ELAM EDU EV EAIDAF ECN EDA EXBS EINTECPS ENRGTRGYETRDBEXPBTIOSZ EPREL EAC EINVEFIN ETA EAGER EINDIR ECA ECLAC ELAP EITI EUCOM ECONEFINETRDPGOVEAGRPTERKTFNKCRMEAID EARG ELDIN EINVKSCA ENNP EFINECONCS EFINTS ECCP ETC EAIRASECCASCID EINN ETRP EAIDNI EFQ ECOQKPKO EGPHUM EBUD ECONEINVEFINPGOVIZ ENERGY ELB EINDETRD EMI ECONEFIN EIB EURN ETRDEINVTINTCS EIN EFIM ETIO ELAINE EMN EATO EWTR EIPR EINVETC ETTD ETDR EIQ ECONCS EPPD ENRGIZ EISL ESPINOSA ELEC EAIG ESLCO EUREM ENTG ERD EINVECONSENVCSJA EEPET EUNCH ECINECONCS ETRO ETRDECONWTOCS ECUN EFND EPECO EAIRECONRP ERGR ETRDPGOV ECPN ENRGMO EPWR EET EAIS EAGRE EDUARDO EAGRRP EAIDPHUMPRELUG EICN ECONQH EVN EGHG ELBR EINF EAIDHO EENV ETEX ERNG ED
KMDR KPAO KPKO KJUS KCRM KGHG KFRD KWMN KDEM KTFN KHIV KGIC KIDE KSCA KNNP KHUM KIPR KSUM KISL KIRF KCOR KRCM KPAL KWBG KN KS KOMC KSEP KFLU KPWR KTIA KSEO KMPI KHLS KICC KSTH KMCA KVPR KPRM KE KU KZ KFLO KSAF KTIP KTEX KBCT KOCI KOLY KOR KAWC KACT KUNR KTDB KSTC KLIG KSKN KNN KCFE KCIP KGHA KHDP KPOW KUNC KDRL KV KPREL KCRS KPOL KRVC KRIM KGIT KWIR KT KIRC KOMO KRFD KUWAIT KG KFIN KSCI KTFIN KFTN KGOV KPRV KSAC KGIV KCRIM KPIR KSOC KBIO KW KGLB KMWN KPO KFSC KSEAO KSTCPL KSI KPRP KREC KFPC KUNH KCSA KMRS KNDP KR KICCPUR KPPAO KCSY KTBT KCIS KNEP KFRDCVISCMGTCASCKOCIASECPHUMSMIGEG KNNB KGCC KINR KPOP KMFO KENV KNAR KVIR KDRG KDMR KFCE KNAO KDEN KGCN KICA KIMMITT KMCC KLFU KMSG KSEC KUM KCUL KMNP KSMT KCOM KOMCSG KSPR KPMI KRAD KIND KCRP KAUST KWAWC KTER KCHG KRDP KPAS KITA KTSC KPAOPREL KWGB KIRP KJUST KMIG KLAB KTFR KSEI KSTT KAPO KSTS KLSO KWNN KPOA KHSA KNPP KPAONZ KBTS KWWW KY KJRE KPAOKMDRKE KCRCM KSCS KWMNCI KESO KWUN KPLS KIIP KEDEM KPAOY KRIF KGICKS KREF KTRD KFRDSOCIRO KTAO KJU KWMNPHUMPRELKPAOZW KEN KO KNEI KEMR KKIV KEAI KWAC KRCIM KWCI KFIU KWIC KCORR KOMS KNNO KPAI KBWG KTTB KTBD KTIALG KILS KFEM KTDM KESS KNUC KPA KOMCCO KCEM KRCS KWBGSY KNPPIS KNNPMNUC KWN KERG KLTN KALM KCCP KSUMPHUM KREL KGH KLIP KTLA KAWK KWMM KVRP KVRC KAID KSLG KDEMK KX KIF KNPR KCFC KFTFN KTFM KPDD KCERS KMOC KDEMAF KMEPI KEMS KDRM KEPREL KBTR KEDU KNP KIRL KNNR KMPT KISLPINR KTPN KA KJUSTH KPIN KDEV KTDD KAKA KFRP KWNM KTSD KINL KJUSKUNR KWWMN KECF KWBC KPRO KVBL KOM KFRDKIRFCVISCMGTKOCIASECPHUMSMIGEG KEDM KFLD KLPM KRGY KNNF KICR KIFR KM KWMNCS KAWS KLAP KPAK KDDG KCGC KID KNSD KMPF KPFO KDP KCMR KRMS KNPT KNNNP KTIAPARM KDTB KNUP KPGOV KNAP KNNC KUK KSRE KREISLER KIVP KQ KTIAEUN KPALAOIS KRM KISLAO KWM KFLOA
PHUM PINR PTER PGOV PREL PREF PL PM PHSA PE PARM PINS PK PUNE PO PALESTINIAN PU PBTS PROP PTBS POL POLI PA PGOVZI POLMIL POLITICAL PARTIES POLM PD POLITICS POLICY PAS PMIL PINT PNAT PV PKO PPOL PERSONS PING PBIO PH PETR PARMS PRES PCON PETERS PRELBR PT PLAB PP PAK PDEM PKPA PSOCI PF PLO PTERM PJUS PSOE PELOSI PROPERTY PGOVPREL PARP PRL PNIR PHUMKPAL PG PREZ PGIC PBOV PAO PKK PROV PHSAK PHUMPREL PROTECTION PGOVBL PSI PRELPK PGOVENRG PUM PRELKPKO PATTY PSOC PRIVATIZATION PRELSP PGOVEAIDUKNOSWGMHUCANLLHFRSPITNZ PMIG PREC PAIGH PROG PSHA PARK PETER POG PHUS PPREL PS PTERPREL PRELPGOV POV PKPO PGOVECON POUS PGOVPRELPHUMPREFSMIGELABEAIDKCRMKWMN PWBG PMAR PREM PAR PNR PRELPGOVEAIDECONEINVBEXPSCULOIIPBTIO PARMIR PGOVGM PHUH PARTM PN PRE PTE PY POLUN PPEL PDOV PGOVSOCI PIRF PGOVPM PBST PRELEVU PGOR PBTSRU PRM PRELKPAOIZ PGVO PERL PGOC PAGR PMIN PHUMR PVIP PPD PGV PRAM PINL PKPAL PTERE PGOF PINO PHAS PODC PRHUM PHUMA PREO PPA PEPFAR PGO PRGOV PAC PRESL PORG PKFK PEPR PRELP PREFA PNG PGOVPHUMKPAO PRELECON PINOCHET PFOR PGOVLO PHUMBA PRELC PREK PHUME PHJM POLINT PGOVPZ PGOVKCRM PGOVE PHALANAGE PARTY PECON PEACE PROCESS PLN PRELSW PAHO PEDRO PRELA PASS PPAO PGPV PNUM PCUL PGGV PSA PGOVSMIGKCRMKWMNPHUMCVISKFRDCA PGIV PRFE POGOV PEL PBT PAMQ PINF PSEPC POSTS PHUMPGOV PVOV PHSAPREL PROLIFERATION PENA PRELTBIOBA PIN PRELL PGOVPTER PHAM PHYTRP PTEL PTERPGOV PHARM PROTESTS PRELAF PKBL PRELKPAO PKNP PARMP PHUML PFOV PERM PUOS PRELGOV PHUMPTER PARAGRAPH PERURENA PBTSEWWT PCI PETROL PINSO PINSCE PQL PEREZ PBS

Browse by classification

Community resources

courage is contagious

Viewing cable 06SANTIAGO227, CODEL MCCONNELL DISCUSSES CHILE'S MIXED SUCCESS

If you are new to these pages, please read an introduction on the structure of a cable as well as how to discuss them with others. See also the FAQs

Understanding cables
Every cable message consists of three parts:
  • The top box shows each cables unique reference number, when and by whom it originally was sent, and what its initial classification was.
  • The middle box contains the header information that is associated with the cable. It includes information about the receiver(s) as well as a general subject.
  • The bottom box presents the body of the cable. The opening can contain a more specific subject, references to other cables (browse by origin to find them) or additional comment. This is followed by the main contents of the cable: a summary, a collection of specific topics and a comment section.
To understand the justification used for the classification of each cable, please use this WikiSource article as reference.

Discussing cables
If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol). Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #06SANTIAGO227.
Reference ID Created Released Classification Origin
06SANTIAGO227 2006-02-01 21:02 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Santiago
VZCZCXYZ0019
PP RUEHWEB

DE RUEHSG #0227/01 0322102
ZNR UUUUU ZZH
P 012102Z FEB 06
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC PRIORITY 8390
INFO RUEHBR/AMEMBASSY BRASILIA PRIORITY 3052
RUEHBU/AMEMBASSY BUENOS AIRES PRIORITY 2887
RUEHCV/AMEMBASSY CARACAS PRIORITY 0855
RUEHLP/AMEMBASSY LA PAZ FEB 4465
RUEHPE/AMEMBASSY LIMA PRIORITY 4442
RUEHMN/AMEMBASSY MONTEVIDEO PRIORITY 3190
RUEHSM/AMEMBASSY STOCKHOLM PRIORITY 0104
UNCLAS SANTIAGO 000227 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV PGOV CI
SUBJECT: CODEL MCCONNELL DISCUSSES CHILE'S MIXED SUCCESS 
WITH PENSION REFORM 
 
1. (SBU) Summary.  Chile,s privatized pension administration 
(Administradoras de Fondos de Pensiones--AFP) superintendent 
Guillermo Larrain briefed Codel McConnell on the strengths 
and weaknesses of Chile,s pension system at a January 13 
meeting in Santiago.  Chile,s three-pillared pension system, 
instituted in 1981, now covers a majority of Chile,s 
workers.  Larrain said the creation of the AFP had also 
served as an enormous catalyst for the development of Chile's 
capital markets, greatly assisting businesses and consumers 
in obtaining credit.  However, Chile,s pension system faces 
a key challenge as its system is mandatory but not universal. 
 According to Larrain, this means that up to 25 percent of 
Chile's workforce -- primarily the sporadically and 
self-employed -- was outside the AFP.  This segment of the 
population would continue to depend on public sector budget 
transfers for retirement funding.  Larrain said several 
foreign countries had adopted variants of the Chilean model 
to reform their own pension systems, with Sweden the most 
similar in his opinion.  End summary. 
 
2. (U) Meeting participants: 
  -- U.S.: Senator Mitch McConnell (R-KY), Senator Mel 
Martinez (R-FL), Senator Richard Burr (R-NC) and Senator John 
Thune, Ambassador Craig Kelly, Professional Staff members Reb 
Brownell, Thomas Hawkins and Paul Grove, Military Escort Col. 
Chris O,Connor, Embassy chief economic officer and Embassy 
notetaker. 
  -- Chile: Guillermo Larrain, Superintendent AFP, AFP Chief 
of Staff Manuel Aylwin. 
 
Three Pillars 
------------- 
 
3. (SBU) At a January 13 meeting in Santiago, AFP 
Superintendent Larrain told Codel McConnell that Chile,s 
pension system has three pillars: 
  a) Mandatory, set contributions for most workers, held in 
privately-managed accounts with five portfolio options 
available; 
  b) Voluntary additional contributions to retirement 
accounts, which increase benefits at retirement; and 
  c) A minimum safety net for Chile,s poorest seniors, which 
is financed by the government. 
 
Larrain touted the national benefits of Chile,s pension 
system, such as the huge infusion of capital into Chile,s 
financial sector through pension fund investments.  At the 
same time, he admitted that Chile,s system remained only 
partially-implemented after 25 years.  He said the AFP 
currently faces major challenges as it seeks the right 
balance of reform and incentives that will bring Chile,s 
marginally or informally employed (20-25 percent of all 
workers) into the system. 
 
First Pillar:  Mandatory Savings 
-------------------------------- 
 
4. (SBU) Larrain explained that workers in Chile, except for 
the self-employed and members of the military, automatically 
contribute to mandatory individual AFP pension accounts, 
which are in turn invested in portfolios.  Workers choose 
from among five portfolios, each offering varying levels of 
investment risk.  Workers can choose from six investment 
companies to manage the portfolio they choose.  For the 
mandatory pension accounts, management companies can only 
offer the five portfolio options designated by Chilean law. 
However, under the additional voluntary savings plans there 
are other investment vehicles offered by the management 
companies, as well as by banks and insurance companies. 
 
5. (SBU) The AFP system, instituted by the Pinochet 
government in 1981, has served as an enormous catalyst for 
the development of capital markets since its inception, 
Larrain noted.  The growth of Chile,s financial markets has 
greatly eased credit for businesses and consumers.  Chilean 
homebuyers can purchase property without a downpayment with a 
mortgage term as long as 40 years.  Pension fund managers, as 
the largest institutional investors in Chile, are a key 
contributor to Chile,s economic progress and stability. 
 
6. (SBU) Larrain said that financial institutions face legal 
restrictions on the use of pension funds and percentage caps 
for investment in any particular sector.  He said one of 
AFP,s main reform objectives was to loosen these 
 
regulations.  These restrictions had limited further progress 
in the pension funds, role in underpinning and expanding 
Chile,s capital markets. 
 
Large Informal Employment Sector 
-------------------------------- 
 
7. (U) While the privately-managed funds have an impressive 
10 percent annual real return, Chile,s pension system faces 
a key problem:  20-25 percent of the Chilean workforce is 
informally employed or only sporadically employed.  Larrain 
explained that AFP studies had shown informally employed 
workers generally saved little, made no pension contributions 
and did not pay taxes.  For this segment of the workforce, 
the AFP,s mandatory contribution system could appear like a 
tax, with informally-employed workers often not understanding 
the difference between a tax and pension contributions.  The 
fact that Chile,s "mandatory" pension system was still not 
universal meant a significant segment of the working 
population would continue to depend on a government safety 
net, whose financing could be a drag on the economy. 
 
8. (U) The short-term economic needs of these lower income 
workers nearly always trumped retirement savings, Larrain 
continued.  The result was a large percentage of Chile,s 
population not participating in the country,s pension system 
at all, thus having no retirement savings, since the AFP 
accounts are funded by the employee, not the employer or 
government.  The U.S. did not have this problem, he said, as 
all workers -- even those receiving unemployment compensation 
-- must pay Social Security. 
 
9. (SBU) Larrain said that a large infusion of government 
money would be needed to bring Chile,s informal workforce 
into the pension system.  Incentives such as government 
matching contributions would likely be needed to encourage 
them to fund their own retirement accounts.  He said a 
large-scale cash fix would not be a responsible or effective 
solution, however, if much of the infusion were to go into 
the pockets of fund managers rather than workers, pension 
accounts.  In this regard, Larrain explained that private 
managers often charge fees higher than fees charged by banks. 
 As an alternative to the higher fees, he asserted, the 
pension system could meet its long-term goals with lower 
returns than it currently enjoys by shifting pension funds 
into instruments with minimal management costs, such as 
savings accounts. 
 
Aging Population Also Challenging 
--------------------------------- 
 
10. (U) Larrain noted that Chile,s population was quickly 
aging, while pension-eligibility ages remained relatively 
young.  While there is no mandatory retirement age, Chilean 
men become eligible for AFP pensions at 65 and Chilean women 
at 60.  With increasing life expectancies, especially for 
women, these eligibility ages were leading to longer and 
longer retirements, in which retirees no longer contributed 
to pensions but received benefits.  At the same time, some 
Chileans choose to start withdrawing their pensions while 
still working at the same or a different job, since there is 
no mandatory retirement age.  Chilean labor law expressly 
forbids termination of employment simply because the employee 
chooses to start receiving his AFP pension.  This put 
financial strain on the pension system, which AFP was seeking 
to alleviate through reform proposals that made it less 
attractive to retire.  While raising the minimum 
pension-eligibility age was a possible solution, Larrain 
said, a more effective mechanism might be to create a point 
system that offered incentives for later retirement. 
 
Second Pillar:  Voluntary Additions 
----------------------------------- 
 
11. (SBU) Larrain said that while the basic pension system 
relied on mandatory contributions, employees were free to 
make additional contributions.  As pension payments at 
retirement are directly linked to contributions during an 
employee's working years, additional voluntary contributions 
were in employees, interests, he said.  Another incentive 
for contributions above the mandatory level was the 
possibility of a one-time cash-out at retirement.  If an 
employee's accumulated retirement savings is high enough 
(normally at least 150 percent of average lifetime pension 
 
contributions), the retiree could collect the excess as a 
lump-sum and use it without restriction. 
 
12. (SBU) While the amount of mandatory pension contributions 
is fixed, Larrain continued, fees and returns on plans could 
vary significantly as a percentage of a worker's income. 
Encouraging more voluntary contributions could thus be 
confusing.  Moreover, while competition among funds should 
lead to lower administrative costs associated with pension 
management, in reality entrance into this market was 
difficult and thus competition weak.  Larrain said that just 
as relatively simple options among 401(k) plans in the U.S. 
were confusing to workers, Chilean workers were often 
confused by differing price structures and benefit plans 
offered by private managers for these voluntary, additional 
retirement contributions. 
 
Third Pillar: Minimum Guaranteed Pension 
---------------------------------------- 
 
13. (SBU) Larrain bluntly noted that the minimum guaranteed 
retirement benefit was underfunded and did not meet some 
seniors, basic income requirements.  While Chilean retirees 
who contributed pension savings throughout their working 
years usually received at least 50 percent of their former 
income, efforts to pay out a minimum guaranteed retirement to 
everyone had been unsuccessful.  The minimum guarantee (only 
available at the legal pension-eligibility age of 65 for men 
and 60 for women, even if the individual had left the work 
force before reaching that age) was not sufficient to meet a 
retiree,s basic living expenses.  Even this limited amount 
had not been paid in full because of inadequate government 
budgeting to fund the minimum guarantee.  Improving the 
minimum guarantee and payouts to the poorest seniors, he 
said, was a challenge that the Chilean government and the AFP 
must overcome. 
 
14. (SBU) Given the challenges of currently providing a 
minimum basic income to Chile,s seniors, Larrain complained 
of how the variety of private management plans and price 
schemes confused Chileans, discouraging additional, voluntary 
contributions.  Larrain said that while the AFP was 
supportive of more investment options, it opposed allowing 
investment companies to increase the pension funds, 
liquidity before retirement.  Larrain did not support 
allowing programmed withdrawal of funds by retirees after 
retirement.  While a programmed withdrawal would allow for 
the flexibility to pass on monies to retirees, heirs, 
something not possible in an annuity-type system, it also 
passed the longevity risk on to the retiree as well. 
 
Others Look to Chile's Model 
---------------------------- 
 
15. (U) In discussing the Chilean pension system,s strengths 
and weaknesses, Larrain noted other nations, experiences 
with retirement systems similar to Chile,s.  He said Mexico, 
Hungary and Poland had adopted systems influenced by the 
Chilean model, with varying success.  A key difficulty many 
of these systems faced, especially in Europe, was workers, 
ability to maneuver between pension systems, making it 
difficult to ensure relatively constant returns.  Also, 
Larrain noted that lowering pensions was highly unpopular, 
even if mandated by legitimate economic factors.  This 
further argued for a more stable pension system where workers 
would not increase the risk of not being able to fund fully 
their own retirement by transferring between pension plans. 
 
Sweden's Pension Reform Seen From Chile 
--------------------------------------- 
 
16. (U) The most interesting example, and the best case study 
for other governments, Larrain offered, was Sweden,s pension 
reform.  Unlike Chile,s pension overhaul, which was 
introduced under the Pinochet dictatorship and involved a 
mandatory migration of most of Chile,s workers over to a new 
system, Sweden,s more gradual reform plan was adopted 
democratically.  The first step in Sweden,s incremental 
reform from the current &pay-as-you-go8 model was the 
introduction of capitalization in private accounts, with 
points rather than monetary amounts as the basis of future 
pensions.  Unlike Chile,s drastic ending of its 
&pay-as-you-go8 system, Sweden allowed a gradual transition 
to government-regulated but privately-managed accounts. 
 
Additionally, Sweden,s new system included the critical 
element of linking amounts contributed to amount received at 
retirement, which Larrain felt was a critical correlation. 
 
17. (U) For Larrain, a possible flaw in Sweden,s new system 
was that employees had too many (nearly 600) different 
portfolios from which to choose.  As most employees had 
neither the capacity nor the patience to weigh the benefits 
of 600 portfolios, the variety of choices  introduced 
confusion.  Larrain also mentioned that Sweden,s social 
welfare system and pension benefits, among the most generous 
in the world, combined with its rapidly aging population, 
created different challenges than would be faced in 
retirement savings reform elsewhere. 
 
Chile's Pension Reform &Best Practices8 
--------------------------------------- 
 
18. (SBU) Regardless of which model a country followed, 
Larrain said that successful pension systems shared several 
key attributes: 
 
  -- They were simple systems with a clear correlation 
between the amount of worker contributions and the amount of 
benefits paid during retirement; 
  -- There was a limited number of portfolio options, with 
low management fees, all presented in a user-friendly format 
(Larrain said that President Bush,s portfolio proposal, 
similar to the USG,s own Thrift Savings Plan for its federal 
employees, was very good in this regard); 
  -- The systems had default options, perhaps with a 
risk-return profile that tracked employee age and reduced 
risk over time; and, 
  -- There existed easy entrance and conversion procedures 
for both new workers and those seeking to convert their 
existing social security accounts/pension plans into a 
capitalized, universal system. 
 
19. Codel McConnell did not have an opportunity to clear on 
this message prior to departure. 
KELLY